Crude price fall could save India $17 bn, says study

New Delhi, Aug 31 (IANS) India could save $17 billion (Rs.680 billion) in crude import bill on account of falling crude prices, currently hovering between $110-120 per barrel after peaking at $147 per barrel, according to an industry lobby study.According to the study by the Associated Chambers of Commerce and Industry (Assocham), the oil import bill for the current fiscal would have soared to $125 billion had crude prices remained around $145 per barrel.

However, with the reversal in the direction of price movement, the import bill for crude would be restrained to $108 billion, assuming the prices average out to $120 per barrel for the last three quarters of 2008-09 fiscal.

In the last financial year, the import bill for crude stood at $67.98 billion.

The study said crude prices have shed almost 25 percent since reaching an all time high of $147.27 per barrel mid-July.

“Considering the government estimates of five-six percent rise in the volumes of crude oil import bill to around 129 million tonnes this year, there would be a jump of 58 percent in the crude oil import bill from fiscal 2007-08,” the study said.

“The softening crude oil prices may come as a respite to the burgeoning current account deficit growing at an alarming rate mainly due to the rising crude oil bill.”

Trade deficit for the first quarter of the fiscal (April-June 2008) widened 42 percent on account of a 50.2 percent rise in the oil imports. The oil import bill for Q1 2008 stood at a $25.5 billion on top of $17 billion in the same quarter last fiscal.

“The economic forces at play in; shrinking demand and improving supply facilities may cool down crude oil prices further which would lead to a narrower than estimated current account deficit. It’s a good positive sign for the economy”, said Sajjan Jindal, president, Assocham.

From 2006-07, India’s crude import grew 9.11 percent in volume terms and a staggering 40 percent in dollar terms in 2007-08. The upsurge in the crude import bill was on account of a steep rise in the Indian basket price from $62.4 per barrel to $79.2/barrel.

According to the Ascoham study, oil prices, after reaching the all time high of $147.27 per barrel July 11, nose-dived mainly on account of correction in demand, easing supply conditions and stronger US dollar.

Oil demand in the US, the biggest oil consumer has fallen sharply from 20.7 million barrels per day (mbpd) in 2007 to 19.88 mbpd in the first quarter of 2008. The OECD-European countries followed suit with a slowdown in demand from 15.28 mbpd in 2007 to 15.24 mbpd in the first quarter of 2008.

On the supply side, Saudi Arabia, the largest oil producer, has planned to raise production to 9.7 mbpd, its highest level in 27 years.

The outlook remains bright unless the oil cartel OPEC, controlling 78 percent of the world oil reserves, decides to cut down production in order to put brakes at the declining crude prices, the study said.

Strengthening US dollar has also played its role in cooling down the crude price. The greenback has appreciated six per cent against the Euro in the last three months.

The average Indian basket price of crude oil was $119 per barrel for the first quarter of the fiscal 2008-09.

However, for the coming quarters in view of the demand-supply dynamics, the Indian basket price is set for a big downfall.

The International Energy Agency (IEA), a global energy policy adviser, has also trimmed the projected growth in global oil demand from 2.3 percent in January to just one percent by July.

The world oil supply is estimated to be slightly higher than demand for the first three quarters of 2008 hence the prices are expected to cool down further right till the end of 2008.